FW: RHB FIC Credit Markets Monthly Review - 7/3/18

 

 

 

7 March 2018

 

Credit Market Monthly Review

February 2017

 

Malaysia’s 2017 GDP Printed a Solid 5.9%; Global Bond Yields Edged Higher.

 

Market Review

¨      MYR Credit Market: Global volatility spike took a toll on the MYR and MGS. Malaysia’s real GDP grew at a healthy pace of 5.9% YoY in 4Q17, though moderated from +6.2% in 3Q17. For the whole year, Malaysia posted a solid GDP growth of 5.9%, the fastest pace in three (3) years. At time of writing, the latest reports on foreign holdings in Malaysian bonds showed foreign inflow of MYR4.5bn as at end-Jan 18. Despite a shorter trading month due to festive holidays and less government auctions, trading in govvies remained strong at MYR61.5bn. Corporate bonds trading, however, moderated to MYR6.3bn.

¨   APAC USD Credit Market: US Treasuries mirrored upward gyration in bond yields movement during the period in review. Yields on the short-end were seen edging higher pressured by Fed hike expectations, which saw the yield curve mirroring a somewhat flattening trend. In the month where volatility largely dominated the narrative, the US Treasuries yields continue to climb steadily higher though remained largely range-bound supported by flight to safety trades after correction in the stock market. While US inflation data surprised on the upside, market participants continued to seek further clarity on the tightening notion. Against the backdrop of more sustained signs of recovery for the US economy as commented by Jerome Powell and reaffirmed views of Fed normalization, prospects of more aggressive pace to interest rate normalization may influence upward trajectory for US bond yields, and potentially influencing upward movement in yields for the regional bond space.

                                             

Outlook

¨   Since the spike of volatility across most financial assets, led by concerns on renewed inflationary pressures in the US and increasing expectations of a more aggressive US Fed, the currencies and assets of EM Asia witnessed some level of re-pricing. Central bank rhetoric globally will again be a key focus, with BNM and ECB meeting this week ahead of upcoming US FOMC meeting. The Fed FOMC will be especially watched, as a rate hike is currently being priced by market players, as Fed Chair Powell chairs his first maiden US policy meeting. As interest rates continue to be pressured upwards by global factors, we are reaffirming our views to stay vigilant whilst maintaining an overall portfolio neutral duration strategy.  We still believe opportunities in the credit space would emerge in the MYR bond space especially in light of the possible re-pricing in the corporate bonds/sukuk space taking cue from the recent movement in the MGS curve, primarily on the long-end of the curve

 

 

 

 

 

 

Table 1: Index Movements

Indices	28-Feb	Changes (bps)
		1M	3M	YTD
iTraxx AxJ 5y IG	67.3	2	-6	-48
UST 2y	2.25	11	47	106
UST 5y	2.64	13	50	71
UST 10y	2.86	16	45	42
SOR 2y (%)	1.81	25	31	5
SOR 5y (%)	2.23	23	12	-17
SOR 10y (%)	2.59	20	29	-31
MGS 3y (%)	3.40	2	0	-9
MGS 5y (%)	3.62	-1	0	-3
MGS 7y (%)	3.94	1	4	-13
MGS 10y (%)	4.03	8	12	-16
AAA 5y Spread* (bps)	77	6	4	77
AAA 10y Spread* (bps)	72	-3	-9	72
AA 5y Spread* (bps)	107	5	3	107
AA 10y Spread* (bps)	105	-5	-11	105

Source: Bloomberg, BNM, RHBFIC        *MYR-denominated bonds